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GBP/USD tags stop losses below 1.18, then reverses

It looks like the bears will have to wait as the technical situation in GBP/USD favours a tiny relief rally.

In yesterdayโ€™s decline below the significant support of 1.18, the Pound killed all the stop-losses and then quickly returned above 1.18 again, in a classic reversal move. On Wednesday, the GBP/USD pair traded at around 1.1825, possibly starting a small relief rally toward 1.20.

Miserable UK macro data

According to the S&P/CIPS flash composite output purchasing manager’s index, the UK economy essentially stagnated in August due to a decline in manufacturing activity (PMI).

The composite indicator, which gauges activity in the industrial and services sectors, dropped from 52.1 in July to an 18-month low of 50.9.

Related blog: Forex outlook: GBP/USD, CHF/JPY, and EUR/NZD

The worst figure since the Covid shutdown in February 2021 was just beyond the threshold of 50.0, which distinguishes contraction from expansion.

The factory output indicator dropped to a 27-month low of 42.4 from 48.9, while the broader manufacturing PMI dropped into the contraction zone to 46.0 from 52.1 in July. In addition, the services PMI was slightly lower at 52.5 in August from 52.6 the month before.

โ€œThe UK private sector moved closer to stagnation in August, as mild growth of activity across the service sector only just offset a deepening downturn at manufacturers,โ€ said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.

The most recent poll also indicated that inflationary pressure was continuing to ease, with average input prices increasing at their slowest rate in a year.

The Bank of England officials, eager to control inflation, which is now at a four-decade high, will feel some comfort from the slowdown in cost pressures, even if it is still substantially over the historical norm.

The industrial trends survey conducted by the Confederation of British Industry supported those findings, revealing a decline in the production balance from +6% for the three months ending in July to -7% at the moment, the first decline since February 2021.

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Pathetic US macro data

Yesterday, the US Services S&P Global PMI decreased to 44.1. In addition, the manufacturing index also reduced at a slower-than-anticipated rate, from 52.2 in July to 51.3 at the moment.

Other data showed that after decreasing by 7.1% in June, new home sales plunged by 12.6% in July.

However, according to the CME Group FedWatch Tool, markets continue to place a 51.5% possibility on a rate hike of 75 basis points in September.

The second half of the day will see data on July’s Pending Home Sales and Durable Goods Orders delivered on the US economic calendar.

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